Collusion and cartels：勾结和卡特尔.pptVIP

Collusion and cartels Repeated Games Threats and credibility Sub-game perfect Nash equilibriumCartels, undercutting, and price wars Challenges facing cartels To form a cartel and sustain an increased price is not obvious: the higher price is a stronger incentive for firms to sell more Cartel agreements must be secret The likelihood of being caught is reduced Secrecy renders it more difficult to discover cheating in the cartel Overt and covert cartels Cooperation versus conflict (1) The motivation to form a cartel: to attain monopoly profit Why do cartels work and why do they not? Cournot duopoly P = A – B(q1 + q2); MC = c; The firms’ best response functions, optimum output levels and Cournot-Nash profits: If it were a cartel: Cooperation versus conflict (2) Cartel is unstable, for the optimum output levels are not the best response to the other firm’s output in a Cournot-game! The ?defector” hurts the other firm, for Cooperation versus conflict (3) The Cournot-Nash equilibrium with N firms: The cartel output of N firms with identical cost functions: Cooperation versus conflict (4) Example: possibilities of mutual gain and conflict of interest P = 150 – Q; MC = 30 The non-cooperative Nash-equilibrium = output = 40; 40, profits = 1.6; 1.6 Firms would gain if cooperated (output = 30; 30, profits= 1.8; 1.8) Cooperation versus conflict (5) The ?classic” prisoners’ dilemma game (PP 7.1) The non-cooperative Nash-equilibrium: C; C = –6; –6 Defendants would gain if cooperated: D; D = –1; –1 How can firms escape the logic of the PD game? What if firms interact more than once? Reward and punishment for firms’ behavior Repeated games (1) Firms realize that after one period of larger πD, their profit falls below πM to the Cournot profit, πC If the game can be repeated, successful cooperation is more likely, for firms can retaliate If firm 2 defects in period 1, it gains $0.225 (2.025 – 1.8), but it looses $0.2 (1.6 – 1.8) in every subsequent period Rep